The city was founded in 1748 by Muhammad Bahawal Khan Abbasi I, whose descendants ruled the area, until it joined Pakistan in 1947.
It is a crossroads city, having the only railroad bridge over the Sutlej. The surrounding area is mostly agricultural, and the city is a market town for datess, wheat, sugarcane, and cotton. In addition, it has soap making and cotton spinning factories, as well as enterprises producing silk and cotton textiles, carpets, and pottery.
The Islamia University is located in Bahawalpur.